The Colonial Economy

The American colonial economy was not designed for the benefit of American colonists. British mercantile doctrine required that colonies supply raw materials -- tobacco, timber, naval stores, furs, rice, indigo -- for metropolitan manufacturing and consume British manufactured goods in return. The Navigation Acts enforced this arrangement, prohibiting colonial trade with competing nations and requiring that enumerated goods pass through British ports. The colonial economy was, by design, a subordinate component of British imperial economic strategy.

The consequences for colonial economic development were significant. Colonists were effectively prohibited from developing competitive manufacturing industries that might rival British producers. They were required to purchase British goods even when alternatives might have been cheaper. They paid for these imports in the raw materials that British merchants priced to their own advantage. The result was a chronic shortage of hard currency in the colonies -- money consistently flowed out to Britain in payment for manufactured imports, leaving colonists scrambling for alternatives.

The monetary improvisation that resulted -- tobacco notes in Virginia, wampum in New England, land bank notes in Massachusetts -- reflected colonial desperation to create a circulating medium in the absence of adequate metallic currency. Several colonies experimented with paper money issued against land, with results that ranged from useful to inflationary. Britain's Proclamation Act of 1763 and the Currency Acts of 1751 and 1764, which restricted colonial paper money issuance, were among the economic grievances that fed revolutionary sentiment.

The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction.Benjamin Franklin (attributed, though exact source disputed)

The Revolutionary War forced the Continental Congress to confront money's political dimension directly. Unable to tax effectively under the Articles of Confederation, Congress printed Continental currency to finance the war. Rapid depreciation -- the currency lost 97% of its value by 1781 -- generated the phrase "not worth a Continental" and left deep scars on American attitudes toward paper money that persisted for generations.

The postwar economy was shaped by the debts the war had accumulated and by the different interests of those who held them. Creditors wanted hard money and debt repayment at face value; debtors wanted paper money and debt relief. Shays' Rebellion (1786-1787), in which Massachusetts farmers took up arms against debt enforcement, crystallized elite fears about what democracy might do to property rights -- and contributed to the Constitutional Convention's decision to strengthen federal power over commerce and money.